Monthly Archives: July 2012

In a previous post I highlighted some of the challenges that are inherent in managing public services due to the nature of being ‘public’. However, there are also challenges that come with managing a ‘service’. These challenges apply across private and public services, and whether delivered by public, private or Third sectors.

These issues are quite important to recognise for all managers given the continuing rise of the service sector across the world. In fact services account for 62.9% of global GDP.

The key characteristics of services are intangible, heterogeneous, inseparable, and perishable as defined by Zeithaml, Parasuraman and Berry 1990 (although some, notably Lovelock and Gummesson, 2004, have questioned this classification).

Intangibility

Services are largely intangible. They are about having an experience. Of course there are some physical characteristics associated with most services, such as the quality of chairs in a fine dining restaurant, but what makes services unique from goods is the extent to which perceptions of service quality are impacted by environmental factors and customer-provider interactions. These intangible factors are very difficult to control or manage.

Take, for example, a business offering guided bus tours of the Scottish highlands. There are a number of physical features of this service such as the comfort of the seats on the bus. But ultimately much of the service experience will be influenced by factors entirely outside of the control of the business – weather, the interaction with staff, the behaviour of other customers on the bus (to name but a few). These intangible factors make service interactions very unpredictable and difficult to control.

Creative Commons license: by Pedro Szekely

Perishability

The fact that services are intangible also means that they are not easily stored for future use. So if there is excess capacity this cannot be stored to be sold at another time. In other words, services are perishable.

Take, for example, a street performer. If they do not attract a significant audience for their performance that equates to lost income. They cannot get that time back. Hence the pressure within many services to get ‘bums on seats’. Consequently, pricing is key – particularly with services that have high fixed costs and a fixed capacity such as with cinemas, restaurants and bus tour companies.

Creative Commons license: by Trey Ratcliff

Inseparability of production and consumption

Most services are produced at the same time as they are consumed. So the street performance will be consumed at the same time as it is ‘produced’. This means that quality control is much more difficult than with goods. It also places significant pressure of service staff to always ‘perform’ at a consistent level. This requirement of service workers to perform is best described by the Hochschild (1983) concept of emotional labour. Numerous studies have shown that the strain of constantly having to perform can lead to stress-related illnesses. This blogpost by Flip Chart Fairy Tales highlights a number of other reasons why people in service occupations tend to have more sickness absence that in other occupations.

As an example of the inseparability of production and consumption take transplant surgery. The medical staff must perform consistently under the most extreme pressure with every single patient. Mistakes can cost lives and, unlike with manufacturing, are often not easily rectified. Yet quality inspection and control can only happen at the same time that the ‘customer’ is receiving the service. Furthermore the speed of service delivery is critical. Under these circumstances it is truly impressive what our health workers do on a daily basis. Hence those who use a service, such as the NHS are likely to be more satisfied with the service than those who do not as outlined in this Ipsos Mori report.

Creative Commons license: by Army Medicine

Heterogeneity

The intangibility and the fact that production and consumption take place at the same time means that the service provided may be slightly different every time. This has significant advantages in terms of customisation and innovation. But it is also costly and can lead to dissatisfaction if a minimum service level is not met.

So a service experience, like a rock concert, may be different every time. Take for example Bruce Springstein’s recent Hyde Park gig where he sung the song, Take Em As They Come, especially for one of his fans in the crowd. The flexibility of many services allows for this sort of innovation and customisation. However, this may be experienced by different people in different ways – even at the same time. The need for some control is also highlighted by the fact that the same Hyde Park gig ran over time to such an extent the organisers were forced to turn off the speakers in order to comply with the terms of their licence.

Nonetheless, the more a service is standardised (which improves efficiency) the less personalisation can be achieved (potentially affecting effectiveness). Imagine if a barber gave every customer the same hair cut. It might be very cheap and efficient but would almost certainly affect customer satisfaction. Given the increasing focus on efficiency over effectiveness it is perhaps not surprising that public attitudes towards the NHS are falling.

Creative Commons license: by Christian Holmér

Conclusion

These factors, when taken together, mean that services are very difficult to manage. When you include the publicness of public services, as well as the complex problems many such services have to deal with, it is perhaps not surprising that they are not always perfectly efficient. Indeed it has been pointed out on this excellent set of posts by Flip Chart Fairy Tales (Part 1; Part 2) just how difficult efficiency gains are in service industries.

This is not to say that we shouldn’t even try to create efficiencies – but it might help to start with realistic expectations.

Last week I had the privilege of going to the QMU graduation ceremony. This is always a highlight of the year for me but this year was quite unique due to the presence of Susan Boyle who received an honorary degree.

This was publicised across the world (see The Jamaica Observer and The Washington Post) and generated a lot of interest in the graduation. What was particularly interesting was seeing paparazzi upon rubbish bins struggling to get a photograph of Susan. Most unusual!

Paparazzi taking photos of Susan Boyle at graduation

After receiving her honorary degree Susan graciously left to attend other prior engagements. This enabled the focus for the rest of the day to be firmly on the graduating undergraduate and postgraduate students of 2012.

I find it particularly special to see students whom I have taught or supervised successfully complete their studies. Among those graduating were the following MBA students.

L-R, Gwenmarie Ewing; Ian Elliott; Giovana Polla

L-R, Ian Elliott; Ros Standish

Among the topics researched from a public services perspective were the following:

Previous research into the continuing professional development (CPD) of allied health staff professionals (AHP’s) in Scotland identified change management as a topic which AHP disciplines sought to learn more about. The knowledge and understanding of change management by therapists in non-management roles has not been widely researched, with many former studies focussed on allied health staff in management roles. This research dissertation aimed to investigate the thoughts and knowledge of physiotherapists and occupational therapists on the topic of change management, to understand how they perceive change management relates to their current roles and to identify any future training needs. Using a phenomenological approach, 13 individual semi-structured interviews were conducted and a selection of job descriptions of posts in acute care were reviewed. Two understandings of change management were reported by participants and similarities in change management training needs were noted between clinicians who had similar roles, across different bandings.

Amanda Forte, Executive Masters in Public Services Management:

“Organisational change management in a Middle Eastern Culture”

Abstract:

The purpose of this dissertation is to examine how the perceptions of ‘change agents’ in a Middle Eastern organisation impact on the implementation of organizational changes. The research undertaken consisted of interviews with ‘change agents’ in one particular organisation which had been the subject of various changes since its establishment. Interviews were conducted at a time when a new change initiative was being initiated with a defined purpose and goal.

Interviews examined how the main ‘change agents’ perceived the need for change and how they managed this within their own areas. The research also examined whether there were specific issues which were experienced, within the context of the Middle East, by ‘change agents’ applying western concepts of the management of change.

The research concluded that, the perceptions of the ‘change agents’ did have a significant impact on the management and implementation of change strategies. The research shows that ‘change agents’ agreement to the need for change is important, but the articulation of the scope and depth of the change to be led by individuals is of equal importance. Similarly the authority of those leading change must be clearly defined and understood as any ambiguity in the perception of subordinates will impact on their willingness to initiate or implement any changes across the organisation.

New public services programme

An increasing number of students from the public services area are showing an interest in issues of leading and managing change. This is hardly surprising as ‘change’ is increasingly being perceived by politicians as a panacea. Yet the implementation of change is incredibly difficult due to the human side of ‘transformation’; the nature of organisational culture; and the nature of public services.

It is with this in mind that we have amended our programmes so that our new undergraduate suite has a module on leading change and our postgraduate public services governance course has a module on leading change in the public services.

This September we will be enrolling students onto our new public services governance course and our new MBA suite. These new programmes have taken a considerable amount of effort from all staff and have included feedback from former students and employers. To find out more about the new programmes click here.

Wake up to the latest Rhianna single playing on your iPod through a Bose docking station. Go to the bathroom and brush your teeth with a Phillips Sonic Rechargeable toothbrush. Have a shower using Molton Brown Shower wash. Moisturise. Then go to your kitchen and have some Rice Krispies Multi-Grain Shapes with B Vitamins and Iron. Open The Guardian app on your iPad and think, “isn’t it terrible that banks have sold products to people that they don’t actually need”.

Why do we expect banks to operate in a moral way for the public good? Since when was making a profit for shareholders not enough? Anyone who has ever worked in sales or marketing will know the emphasis that is placed on ‘upselling’ – selling extra products or services to people that they don’t actually need. As Milton Friedman said,

…there is one and only one social responsibility of business – to use resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competitions, without deception or fraud.

(Friedman and Friedman, 1962, p. 133)

Of course, management thought has moved on somewhat since the 1960’s and I am not advocating a Friedman style of capitalism. It also cannot be ignored that action must be taken when businesses commit fraud or other illegal acts. But the question for me is what has led to such moral outrage?

And why is it, at a time when public services are being expected to operate more like businesses, politicians seem to be expecting businesses to act more like public services?

In 1986, the brilliant economist, Susan Strangehighlighted the many flaws in the global financial system and in many ways predicted the financial crash of 2008. Strange also noted that it is governments and policy-makers, often misled by neo-liberal theory, who set the framework which enables such behaviours to take place. Anyone who has read either Casino Capitalism or the follow-up Mad Money would not be surprised at the behaviour of bankers at Barclays, RBS or any other bank. What is surprising is the extent to which politicians, who have allowed such behaviour to continue unchecked for so long, appear so shocked and outraged by the whole affair.

What seems to be going on here, at least in part, is that banks are becoming, in effect, a public service. In 1953 Paul Samuelson set out what he described as a collective consumption good. These are now refered to within economics as ‘public goods’ and consist of two characteristics: 1) Non-excludable; 2) Non-rivalry in use.

1) Non-excludable

According to the Collins English Dictionary a bank is,

an institution offering certain financial services, such as the safekeeping of money, conversion of domestic into and from foreign currencies, lending of money at interest, and acceptance of bills of exchange

It would be right to point out that access to banking services is a choice that consumers make. You are not compelled to have a bank account and banks are there to serve the interests of customers and shareholders. They do not serve a public purpose in the same way as national defence or national vaccination programmes.

But today to be included in society increasingly you need a bank account. State pensions and benefits are paid into bank accounts, mortgages are paid from bank accounts, wages and salaries are paid into bank accounts. To stop someone having a bank account is increasingly to exclude them from society. Of course, it is possible to exclude people from having a bank account. And people may choose themselves not to have a bank account (what is known as the power of exit). As such banking services are not a pure public good.

However, the importance of access to financial services was highlighted by the former UN Secretary-General, Kofi Annan, in launching the 2005 International Year of Microcredit when he said,

The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. The International Year of Microcredit offers a pivotal opportunity for the international community to engage in a shared commitment to meet this challenge. Together, we can and must build inclusive financial sectors that help people improve their lives.

What is more, is that the effects of a banking collapse, such as witnessed in 2008, are non-excludable. A banking failure does not just impact on shareholder and customers – it impacts on the entire economy. Banks are now such an important part of the economy, in a way they were never designed to be, that they are too big to fail.

2) Non-rivalry in use

The second key feature of a public good is non-rivalry in use. In other words one persons use of the good does not detract from another persons use. Compare, for example, a private good like a Mars bar, with a public good like street lighting. There is no rivalry in the use of street lighting, similarly my use of a bank account or mortgage does not detract from the benefit you may received from having a bank account of mortgage. And such is the interdependency within the whole bank system, if my bank fails the impact of that is not just going to affect me but it is likely to cut across all banks.

Of course it is important to note that not all public services are public goods. Many are ‘merit goods’; where it is seen that there are significant benefits from public ownership of the product or service, or significant risk from private ownership, for example the UK National Health Service.

So we come back to the purpose of banks. If they are there to provide a return on investment to shareholders we should not be surprised or condemnatory when they use underhand tactics (which are legal) to meet that purpose. If the government are so concerned about ethics then why not speak out about the general rise of unethical business practices? And if we are coming to expect higher ethical standards from the private sector perhaps we should start with the arms industry? Or oil industry, food industry, alcohol industry, cosmetics industry…….

If, however, we recognise that banks are in fact delivering a valuable public service this raises much more fundamental questions about the organisation, ownership and delivery of banking services. An interesting perspective here might be taken from Bozeman’s (1987) book “All Organizations Are Public“. In relation to the banking sector perhaps the German system is worthy of some serious consideration as alluded to by Vince Cable. Moving beyond the current chatter about legislation and inquiries these structural issues are, I think, much more interesting.

References:

Bozeman, B. (1987) All Organizations Are Public: Comparing Public and Private Organizations. Jossey-Bass, San Francisco.